Stocks’ Details

WAM Capital Limited

Decent Dividend Yield: WAM Capital Limited (ASX: WAM) is a small-cap Australia-based investment company with the market capitalization of circa $1.49 Bn as of May 22, 2019. Recently, the company released its 1HFY19 results wherein overall investment portfolio decreased by 9.3% in 1HFY19,resulting in a reduction of $132 million in assets leading to an operating loss after tax of $915 million. Investment operations during 1HFY19 resulted in an operating loss after tax of ~$91.47 million, primarily on the back of higher volatility in the Australian equity market along with the performance of the investment portfolio over the six months ending 31^st December 2018.

The company during the half, successfully took over Wealth Defender Equities Limited (WDE). With a 100% interest in WDE, the share issuance to take over WDE generated over $15 million in value for WAM capital shareholders. The company paid a final dividend of 7.75 cents per share fully franked during the period along with an interim dividend of 7.75 cents paid on 26 April 2019.


Investment Portfolio Performance (Source: Company Reports)

WAM’s Focus Going Ahead: On the back of significant Chinese stimulus, the global economy is looking forward to growth with key relevance to Australia. With a global slowdown in growth along with tightened financial conditions, the key drivers of equity markets are liquidity cycle, business cycle and political cycle. The US unemployment rate is at its 48-year lows. Hence, the company remains focussed on these macroeconomic factors, going forward. 

The stock generated a return of 2.97% over the past one month. At the current market price of $2.110, WAM enjoys a decent annual dividend yield of 7.45%. Based on the uncertain economic environment along with other mentioned factors, we give a “Speculative Buy” recommendation on the stock at the current price of A$2.110 per share (up 1.442% on 22 May 2019).
 

NAOS Emerging Opportunities Company Limited

Stable Dividends Since Inception: NAOS Emerging Opportunities Company Limited (ASX: NCC) makes an investment in listed entities outside the S&P/ASX 100 Accumulation Index and provides exposure to emerging companies with a good performance track record.

For the month of April, the investment portfolio returned -3.54%, underperforming the benchmark S&P/ASX Small Ordinaries Accumulation Index which increased by +4.11%. This brings the inception return over the past 6 years and 2 months to +11.57% p.a. or +96.49%in nominal terms, outperforming the XSOAI which has increased by +6.43% p.a. or +46.87% over the same period. Since inception, NCC has now distributed 39.25 cents in fully franked dividends or 55.89 cents in gross terms. The portfolio underperformance was driven mainly by its exposure to micro-cap sized companies operating in industrial businesses.

The performance of the NCC portfolio was driven by two factors including clear short-term negative earnings surprises from the three core investments and a noticeable lack of investor appetite for investing in micro-cap businesses, leading to a significant valuation de-rating which has even affected the best performing businesses.

 

Fully Franked Dividend Profile (Source: Company Reports)
 
In 1HFY19, the company reported a loss of 190% over the prior corresponding period to $6.18 million with revenues from ordinary activities down by 181.0% to $~7.90 million over the prior corresponding period. The negative impact is primarily driven by loss on financial assets held at fair value through profit and loss.
 
NCC’s key investments Enero group and CML group performed well in the third quarter of FY19. Enero achieved a record EBITDA result with 15% organic revenue growth, whereas CML released a very strong 1HFY19 result with EBITDA up +30% and the share price subsequently reaching a high of $0.58 from a low of $0.42 in December.
 
Outlook of NCC’s Investments: MNF, one of the key investments of NCC has a lowered FY19 EBITDA guidance by ~5% and maintained FY20 EBITDA guidance, which implies ~25% EBITDA growth. Further, Smartgroup (ASX: SIQ) customer base operates in the industries that are experiencing structural growth such as healthcare, education and aged care which will benefit the SIQ business over the long term.
 
Stock Recommendation:The stock performance of NCC remained volatile with the short-term negative returns of 12.84% and 19.49% over the three months and six months period, respectively and is trading close to its 52-week low level of $0.905. Hence, we recommend a “Speculative Buy” on the stock at the current market price of $0.965 (up 1.579% as on 22 May 2019).
 

Clime Capital Limited

Regular Dividends: Clime Capital Limited (ASX: CAM) is a small-cap investment company with the market capitalisation of ~$81.7 Mn as of 22 May 2019. Recently, the company disclosed that at the close business on 30 April 2019, the gross assets value of the company’s investment portfolio was approximately $108.8 million. This was calculated after cash dividend payment of $0.97 million (ex-DRP) and tax payment of $0.99 million for the March 2019 quarter. The gross portfolio return rose by 5.1% prior to dividend and tax payments. The company maintained historical dividend yield of 5.7%.
 
The gross assets also include an accrual for interest payable of approximately $220k on convertible Notes for the two months ended 30 April 2019. The company accrues interest around $110k per month until paid each quarter.
 
The company pays quarterly interest on its issued convertible notes, namely CAMG - CONVERT BOND 6.25% 30-11-21 QLY RED at the rate of 6.25% per annum based on the issue price of 96 cents. The interest will be paid on June 12, 2019 with an Ex-Date of June 3, 2019. The company had declared a March 2019 quarter interim dividend of 1.25 cents per share fully franked, which was paid on 26 April 2019. The dividend represents a 2.5% increase on the dividend declared in the previous corresponding quarter due to the 1 for 40 bonus issue issued on ordinary shares in September 2018.

1HFY19 Results (Source: Company Reports)
 
The company recorded an after-tax loss of $5,182,729 for 1HFY19 as compared to an after-tax profit of $5,574,136 for 1HFY18, primarily due to unrealised loss on financial assets at fair value to profit or loss recognised during the period. A strong first quarter was followed by a particularly weak December quarter. CAM portfolio outperformed in the first quarter but underperformed in the second quarter.
 
Stock Recommendation: The stock has yielded a YTD return of 3.49% and is currently trading towards its 52-week low. With the current dividend yield of 5.62%, and the gross portfolio return going up by 5.0%, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.895 per share (up 0.562% on 22 May 2019).


Comparative Price Chart (Source: Thomson Reuters)    

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